Nokia Sinks Deeper Into Junk Status With New S&P Downgrade
The bad news just keeps coming for Nokia. Standard & Poor’s Ratings Services today announced that it has downgraded Nokia’s long-term corporate credit rating from BB+ to BB-.
Although both ratings are considered “junk status,” BB- is a lower rating, indicating that the company “faces major ongoing uncertainties to adverse business, financial, and economic conditions.” S&P has affirmed an even worse B rating on Nokia’s short-term credit.
“The rating actions reflect a downward revision of our estimates of revenues and profitability for Nokia’s smartphone operations in 2012 and 2013,” S&P said today in a statement. “We have subsequently also revised our cash flow assumptions, including the impact from Nokia’s restructuring of its Devices and Services division. In line with our criteria, we have therefore revised our assessment of Nokia’s business risk profile to ‘weak’ from ‘fair’ and that of the financial risk profile to ‘significant’ from ‘intermediate.’”
Nokia has been facing enormous pressure to stay relevant in the mobile space. The company’s handset shipments are plummeting, and Windows Phone, the operating system to which it has hitched its future, has yet to cement itself as a credible threat to iOS and Android. All of that has resulted in massive losses and Nokia’s announcement of major layoffs and plans to restructure its operation to return to profitability.
S&P Ratings Services isn’t so sure that things can turn around for Nokia so quickly, saying today that it believes the company has a 50 percent to 70 percent chance of recovering and paying off creditors in the event of a payment default.
“Nokia’s revenues could stabilize in 2013 if growth from Lumia smartphones is able to offset the revenue decline from smartphones using the Symbian operating system and, to a lesser extent, from mobile phones,” S&P said, trying to find a silver lining.
S&P is widely viewed as one of the more reliable credit rating organizations. Moodys, another prominent credit rating agency, has also sounded off on Nokia, reporting back in June that it had downgraded the company’s long-term debt to Ba1 from Baa3, effectively putting it in junk status.